PRODUCTIVITY PROBLEM

While AI may lead to sizable increases in labor productivity, that’s no reason to lower rates as Kevin Warsh suggests. Productivity gains may not materialize, moreover the massive investment in AI/LLMs is pushing up prices for energy, chips, electrical equipment, plumbers, electricians, and so on. Therefore, you probably see lower production costs from increased investment, and thus faster growth, but concomitant inflationary pressure. To prevent it, rate hikes are likely.